Editorial: Proactive plan for pensions a smart decision

In a town where many Wall Street titans live, a weak market is forcing officials to take decisive action to cover the town’s pension shortfall.

Kudos to the Town Council and Retirement Board of Trustees for being proactive in what could have been a $100 million deficiency over the next 30 years.

Following a report by the retirement board’s chairman, Daniel Stanton, the council smartly voted Tuesday to spend $5.4 million a year above and beyond its regular, legal obligations to cover the town’s long-term obligations to its employee pension plan. The town is already committed to contribute $9.2 million for the fiscal year that begins Oct. 1.

But why is the pension fund suddenly facing such large losses? The simplest answer: Poor market returns.

The plan’s assumed return on investments, once 8 percent, is gradually being lowered to 7 percent over the next few years. But the actual return over the last 16 years has been only a measly 4.4 percent. That adds up to millions of dollars the fund, which in 2015 lost $23 million, is short.

The $5.4 million will erase the $100 million shortfall as of 2032 — if investment yields meet the 7 percent threshold, Mr. Stanton told the council. If no action is taken, the pension program, which is only 68 percent funded now, could see its deficit grow by $40 million.

That’s a scenario the town adroitly chose to avoid. Instead of kicking the can down the road, the council and the retirement board showed leadership.

But by doing so comes with a price. The extra $5.4 million here is one of the driving factors behind a 5.4 percent property tax hike planned for the upcoming fiscal year (the council decided last week to keep the same tax rate of $3.27 per $1,000 of taxable value even though valuations rose).

The current council did not create this problem, which many other municipalities are also facing. Even with the unwanted tax increase, residents and town employees should be thankful, though, that council members took the right steps to avoid a potential financial catastrophe.